Formation is at the same depths as the Niobrara in Colorado. Colorado has the Rollins gas sand above though and extensive infrastructure already in place. Operators can even use the wellbores of depleted gas wells for re-entry and sidetrack.

I'll jump in with a question. My family has had a lease for natural gas for thirty years in Morganza (Lacour/Debetas Well) The payouts for our parcel used to be decent per month but in the last 10 years they have gone down to about 20% of previous value . Everyone I've ever spoken that works in the industry says it will payoff huge in the future... anyone got any idea when?

Leases are fixed rate per acre and normally only for 3-5 years. If you have a gas well on the property you are getting royalties. Wells decline in production over years. Maybe they are thinking that an oil well will be drilled in the property.

Yep. It has been producing for thirty years now. The royalties have gone down to a few hundred a month. Perhaps it's like you say and the prospect of oil is at play as well in my informed friends opinion. Other more informed on this board may know.

quote:Tuscaloosa Marine Shale – Encana has established an industry leading land position in the Tuscaloosa Marine Shale totaling approximately 355,000 net acres. The two most recent wells (Anderson 17H-1 and 18H-1) have horizontal lateral lengths of about 7,400 feet and 8,800 feet and produced initial 30-day production rates of 930 and 1,080 barrels of 40 degree API gravity oil per day. Encana plans to drill a total of 12 wells in the play in 2012.

quote:The oil out of these wells will get a ~$20 premium over the WTI price, so that should help out the well with making economic sense.

This is off a bit. I'd have to look at prompt LLS at the time of posting, but today it's $15-16 over WTI with a "tropical" premium thrown in there as of Friday. Probably looking at +$8.00 at best after transportation and margins thrown in there.

June LLS spread was ~$14, so not sure where the $20 is coming from. At the lease that translates to much lower.

re: Tuscaloosa Marine Shale(Posted by TigerV on 6/24/12 at 8:06 am to b-rab2)

quote:Huh??? If they produce an average of 250 bopd @ $80/bbl that's $7.3 MM a year. It's paid off in less than 2 years.. I'll take that

Keep in mind that the $10MM number does not include production costs, marketing and trucking costs, all of which is minimal. What is not is that these operators are only getting 75% net revenue and the mineral owner get on average 25%. So drop that $7.3MM down to $5.4MM.

We have still not seen the long term production numbers. There has been a lot of improvement and learning with the longer laterals and more frac stages, but keep in mind there are operational limitations with these long laterals. THere is a physical limit to how long the wells can be (8000 ft + 13,000 ft TVD = 21,000 ft) most coil tubing used to drill out the frac plugs have 19,500 ft restrictions. Under the right circumstances this can be increased and they are obviously looking for ways to make this work. The oil is there and it can be very lucrative to make it work, but i still believe we are a few years away before you see the kind of drilling that is in North Dakota and TX. There still needs to be improvements to technology and frac designs to overcome the poorer quality of the rock.

quote:You may be right, that's just what we had heard from some people in the industry

April and May LLS averaged $20 over WTI, so the pure numbers they were throwing out may have been true at the time. June was $14 and July is about $12.50. It's trending lower because of the glut of light sweet crude that is hitting the gulf coast from Bakken, West Texas, South Texas, the GOM, and in some cases, West Africa. Hurricane season is tricky, but the general trend will be lower because of the infrastructure relieving pressure on Cushing (like Athanatos said). These are amounts paid at St. James though and they don't account for transportation, margins, etc., so the the netback at the lease will probably run at least $5 lower than LLS, and possibly a lot more depending on who is in the middle and exactly where the crude is coming from as well as quality.

I just don't think it's something to bank on from here on out because in all likelihood that spread is only going to shrink as a long term trend.

Crude is starting to see an oversupply situation to that which natural gas has gone through and the oil rig count needs to shrink or things could get ugly.

quote:That's unfortunate. Encana has the worst track record when it comes to community satisfaction. They would be the last company I'd want in my neighborhood.

That's strange to hear, from my perspective they have been very easy to work with, environmentally responsible, pick up trash everywhere, moved one of my buildings at no cost to me, and leave any road on my property better than when they found it.

quote:That's strange to hear, from my perspective they have been very easy to work with, environmentally responsible, pick up trash everywhere, moved one of my buildings at no cost to me, and leave any road on my property better than when they found it.

Of the operators in my area they are mist definitely the worst. 9/10 if there is a community issue it involves Encana. Williams and Noble have the best reputations.